Managing strategic suppliers effectively is essential for procurement and supply chain teams to improve processes and drive competitive advantage for their organization. The key lies in the ability to extract the best from key partners. Strategic vendors and suppliers are critical to provide products or services that meet your company’s major demand requirements and therefore play a vital role in your supply chain. Investing time and effort in managing these suppliers will contribute considerably to the success of your organization. This article outlines some best practices for strategic Supplier Relationship Management (SRM) that will help buyers increase their effectiveness in managing critical suppliers.
Identifying your strategic suppliers
The amount you spend on any particular supplier is not the only factor needed to identify strategic suppliers. Procurement teams must also evaluate whether or not they anticipate a long-term relationship with the supplier to help the organization compete successfully in the market.
The following questions will help identify truly strategic suppliers:
- What is your company’s business strategy in your marketplace(s)?
- Do you have a plan in place to accommodate changes in your business strategy, and how would changes in demand impact your purchasing decisions and spend?
- How do your products and solutions meet your customers’ needs today? How do you expect your customers’ needs to change in the future?
- How do you anticipate products and services purchased today integrating into your products and solutions in the future?
- Which products or services purchased (and consumed internally) to run your business today do you see becoming impacted based on how you may purchase in the future? (Indirect procurement)
- Which suppliers are best at delivering what you need today?
- Which suppliers have the best strategy (currently in place) to deliver what you anticipate you may need in the future?
The first aspect to consider when communicating with suppliers is the purpose of the relationship, which is to build an effective, long-term partnership. Hence, buyers must communicate with their suppliers with a level of mutual respect. Threats, aggression, and negotiation stunts should be avoided as these will likely undermine the degree of supplier trust into the relationship (which we move on to below). It is wise to consider the supplier as an extension of the internal organization and therefore subject to the professional interaction afforded to co-workers.
Second is that all important level of trust in the relationship. For instance, some companies will encourage buyers to have at least one or two informal coffees year with their key contacts in strategic suppliers. This usually leads to a more informal working relationship between two individuals and within that informality greater trust is forged. This also maximizes the possibility for knowledge sharing from both parties, providing the supplier with more insight into future product road maps. It also leaves the buyer with a greater appreciation of supplier capabilities.
Supplier relationship management training
The most comprehensive approach to significantly improving your SRM is to provide innovative supplier management team training. Strategic partnerships are at the top of the corporate agenda of global organizations and SRM is seen as one of the few remaining procurement topics that can still make a major difference. Nevertheless, numerous organizations find it difficult to initiate, develop and manage their supplier relationships. Supplier management training courses should cover topics such as the process to run SRM, supplier identification, supplier segmentation, relationship analysis and performance management. Having learnt new skills on supplier relationship management your team then need to be given the opportunity to practice their new skills real life scenarios.
In summary, these three activities can better ensure that strategic supplier relationships are more likely to prosper. This will ensure a lasting relationship with strategic suppliers, resulting in a significant improvement of the bottom-line of your organization. Companies need to work towards engaging key strategic suppliers to build a mutually beneficial relationship.